Question 1: Regarding Woolworths (WOW) and its buyback, the shares look overvalued.  While I like the strength of the company, what would be an action to take post the buyback? Re-invest in WOW or look for more value priced shares? To stay in the food market, what are your thoughts on splitting the investment with Coles (COL) and waiting for better value with WOW?

Answer: I think you’re heading in the right direction. Woolworths has become very expensive. It’s now trading on a multiple of 25.6 times forecast FY19 earnings and 24 times forecast FY20 earnings. On the other hand, Coles is trading on a multiple of 19.7 times forecast FY19 earnings and 19.5 times forecast FY20 earnings. It should trade at a discount to Woolworths but what’s the right level? The whole consumer staples sector has become super expensive. I think it’s a function of not having any alternatives. Investors don’t want to buy banks. They think the resource majors are fully priced, the interest rate defensives have had a big run, the IT stocks are through the roof and the industrials are suffering profit downgrades. I just can’t get excited by either stock. My strategy? Accept the buyback and then sit it out. Coles is value in the $11’s and getting expensive near $13. Have a look at Woolworths again under $30.

Question 2: Recently I have taken profit on Goodman (GMG) and GPT, stocks that I’ve held for many years. To gain diversification in my portfolio, I’m looking at Sonic Healthcare (SHL) to get health exposure. They’re very diversified around the world and in their business operations and appear to have ridden a fast path to this position. What are your thoughts about this company, please?

Answer: I can understand your rationale for taking some profits on Goodman and GPT – the property sector is somewhat overbought. With Sonic, I quite like the stock but find it hard to get a real read on how they’re travelling, given that the USA is now their biggest market. Given their track record of steadily rising earnings and revenue (admittedly, partly through acquisition), there doesn’t seem too much downside. But the metrics aren’t cheap – trading on a FY19 forecast multiple of 22.4 times and 21 times for FY20. The analysts see the stock as pretty fairly priced – with a consensus price target of $25.78, about 2% lower than the current price. The broker range is also relatively narrow – a low of $24 and high of $28.

If I had a choice in this sector, I’d probably still vote for CSL over Sonic – but I’m not adverse to the idea of putting some money in Sonic. 

Question 3: I’m in my late 20s and think of myself as a young but ambitious investor. I’ve been following Paul and Peter’s advice for investment. My question is: what would the advice be for young investors when choosing stocks and ETFs? And what are other high-risk, high-return opportunities for young people like me?

Answer: In general terms:

1. I’d typically be suggesting a strong bias towards growth styles assets (e.g. shares, international shares, property, possibly collectibles, etc.) – 70% to 90% of your portfolio, which can withstand a couple of economic cycles;
2. Depending on your tax situation and risk appetite, possibly even consider a geared approach; and
3. You can review our model growth portfolio here. This may help in relation to portfolio construction.  https://switzersuperreport.com.au/advice/model-portfolios/